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Long-Term U.S. Budget Picture Still Filled With Red Ink: CBO

It would take larger changes in either taxes or spending to keep long-term federal
debt stable than was projected just eight months ago, the nonpartisan Congressional
Budget Office said.

In its annual long-term
outlook issued March 30, the CBO said the 30-year fiscal gap had risen to 1.9 percent of
GDP from 1.7 percent the agency had estimated in July 2016. The gap is one way of
looking at the long-run imbalance between projected federal spending and revenues.

“Large and growing federal debt over the coming decades would hurt the economy and
constrain future budget policy,” the report said.

“The amount of debt that is projected under the extended baseline would reduce national
saving and income in the long term; increase the government’s interest costs, putting
more pressure on the rest of the budget; limit lawmakers’
ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis,
an occurrence in which investors become unwilling to finance a government’s borrowing
unless they are compensated with very high interest rates,” the report said.

Waiting Only Worsens

Anti-deficit groups said the report underscores the need for action on the deficit
and debt, before even larger changes would be needed.

“Putting debt on a sustainable path will require significant spending cuts, revenue
increases, or more likely both,” the bipartisan Committee for a Responsible Federal
Budget said in an analysis. “However, delaying action will increase the size of the
needed adjustment for a given fiscal target. Waiting 10 years will increase the needed
adjustment by about 50 percent.”

The Peter G. Peterson Foundation said in a blog posting on the report: “No American
wants a future in which our economy is saddled with debt, starved of investment, and
struggling to grow. Only with a fiscal outlook that is stable and sustainable can
we ensure that we have sufficient resources to invest in our future.”

While anti-deficit activists said the report showed the need for action, reaction
on Capitol Hill was muted. Only one of the party leaders of the House and Senate Budget
committees, House Budget ranking member John Yarmuth (D-Ky.), even issued a statement
in reaction to the report.

Lower Long-Term Rates

The CBO said the report’s projections were “generally similar” to its report issued
in July, though noninterest spending and revenues were up while projected interest
costs were down.

CBO’s fiscal gap measure attempts to boil down its projections into a single measure
of the fiscal outlook. It measures how much taxes would have to be raised or noninterest
spending cut each year for the next 30 years to meet a specific debt goal—either keeping
debt at its current level in proportion to the U.S. economy or cutting it to its 50-year
average.

In July, the fiscal gap to simply keep debt in 2046 at its current level—the easier
of the two goals—
was 1.7 percent of GDP, or equivalent to $330 billion or $1,000 per person.

In the new report, with the new 30-year window stretching to 2047, the gap had increased
to 1.9 percent, equivalent to $380 billion or $1,100 per person.

For comparison’s sake, the CBO projects the budget deficit for 2018, the first year
to make those spending cuts or tax hikes to close the fiscal gap, will be about $487
billion.

Despite the gloomier fiscal gap projection, the CBO said interest costs over the long
run posed less danger than in the July forecast.

“After considering a number of factors, including slower growth of the labor force,
CBO expects real interest rates on federal borrowing to be lower in the future than
they have been, on average, over the past few decades,” the CBO said.

To contact the reporter on this story: Jonathan Nicholson in Washington at
jnicholson@bna.com

To contact the editor responsible for this story:
Paul Hendrie at
pHendrie@bna.com

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